Question 2 (5 marks) Value at risk (VAR) is the new benchmark for managing risk. Every morning, Lesley, global head of market risk at J.P. Morgan Chase, receives a thick report that summarizes the value at risk (VAR) of the bank. The document is generated during the night by the bank's global risk measurement system. Today, many banks, brokerage firms, investment funds, and even nonfinancial corporations use similar methods to gauge their financial risk. Bank and securities markets regulators and private-sector groups have widely endorsed statistical-based risk management methods such as VAR (value at risk). a) Morgan determined that the value at risk (VaR) of its investment portfolio is $18 million for one day at a 95% confidence level. How can we interpret this statement. Explain VAR. (3 marks) b) A portfolio manager wants to calculate the VAR of his portfolio valued at USD 100 million. The annualized standard deviations of returns of the overall portfolio is 2.64%. Assume the risk analyst uses a 1-year 95% VaR and the returns are normally distributed. Compute the VAR of this portfolio. (2 marks)